FacebookTwitterGoogle+RedditEmail

How the Rich Are Grabbing Bigger and Bigger Slices of Pie

by SAM PIZZIGATI

What happens when nations cut taxes for their richest citizens?

Economists Thomas Piketty and Emmanuel Saez, two of the world’s most respected authorities on the incomes of rich people, have a straightforward answer: In nations that slash tax rates on high incomes, the rich significantly increase their share of national income.

Here in the United States, for instance, the tax rate on income over $400,000 has dropped by half, from 70 to 35 percent, since the 1970s. Over that same span, the households that comprise the “1 percent” have over doubled their share of the national income, to 20 percent.

In many European nations and Japan, by contrast, tax rates on the rich didn’t fall as fast or as far. And rich people’s slice of the income pie increased “only modestly,” note Piketty and Saez in a new analysis they co-authored with researcher Stefanie Stantcheva.

This phenomenon doesn’t trouble conservatives. High taxes on rich people, they claim, do terrible economic damage by discouraging the entrepreneurship that makes economies strong. Lower taxes on the rich, this argument continues, encourage entrepreneurs, who invest and create jobs when lower taxes let them keep more of the income they take in.

Yes, conservatives freely admit, the rich can and do amass plenty of money in a low-tax environment. They’ll even increase their share of national income. But the rest of us shouldn’t worry. Thanks to the rich, right-wingers argue,
we all benefit from a bigger and better economy.

Piketty and his colleagues put these claims to the test. If the conservative argument reflected reality, they point out, nations that sharply cut tax rates on the rich should experience much higher economic growth rates than nations that don’t.

In fact, the three economists note, reality tells no such story. Nations that have “made large cuts in top tax rates, such as the United Kingdom or the United States,” they explain, “have not grown significantly faster than countries that did not, such as Germany or Denmark.”

So what’s going on in countries where the rich all of sudden face substantially smaller tax bills?

In countries that go soft on taxing the rich, top business executives don’t suddenly — and magically — become more entrepreneurial, more “productive.” Instead, they suddenly find themselves with a huge incentive to game the system, to squeeze out of their enterprises every bit of personal profit their power enables.

The more these executives can squeeze, the more they can keep. The result? The 1 percent in nations that cut taxes on high incomes proceed, as Piketty and his fellow authors put it, to “grab at the expense of the remaining 99 percent.”

Millions of us know this grabbing first-hand. We’ve seen corporate execs routinely outsource and downsize, slash wages and attack pensions, cheat consumers and fix prices.

How can we start discouraging these sorts of behaviors? Piketty and his fellow analysts have a suggestion: raise taxes on America’s highest-income bracket. Raise them as high as 83 percent.

This suggestion, the three scholars acknowledge, may right now seem politically “unthinkable.” But back between the 1940s and the 1970s, they remind us, the notion that we ought to raise taxes on the rich to reduce the incentive for outrageous behavior rated as our conventional wisdom.

In those years, policymakers — and the public at large — felt strongly that pay increases for the wealthiest Americans reflected “mostly greed or other socially wasteful activities rather than productive work effort.”

Is this mid-20th century perception about pay at the top now about to make a comeback? Piketty and friends certainly think so. Let’s hope they have that one right, too.

Sam Pizzigati is an associate fellow at the Institute for Policy Studies in Washington DC, editor of the journal Too Much and author of The Rich Don’t Always Win, Seven Stories Press, New York, forthcoming 2012.

This column is distributed by OtherWords.

Sam Pizzigati writes on inequality for the Institute for Policy Studies. His latest book is The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (Seven Stories Press). 

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
December 09, 2016
Friday - Sunday
Jeffrey St. Clair
Roaming Charges: Nasty As They Wanna Be
Henry Giroux
Trump’s Second Gilded Age: Overcoming the Rule of Billionaires and Militarists
Andrew Levine
Trump’s Chumps: Victims of the Old Bait and Switch
Chris Welzenbach
The Forgotten Sneak Attack
Lewis Lapham
Hostile Takeover
Joshua Frank
This Week at CounterPunch: More Hollow Smears and Baseless Accusations
Paul Street
The Democrats Do Their Job, Again
Vijay Prashad
The Cuban Revolution: Defying Imperialism From Its Backyard
Michael Hudson - Sharmini Peries
Orwellian Economics
Mark Ames
The Anonymous Blacklist Promoted by the Washington Post Has Apparent Ties to Ukrainian Fascism and CIA Spying
Erin McCarley
American Nazis and the Fight for US History
Yoav Litvin
Resist or Conform: Lessons in Fortitude and Weakness From the Israeli Left
Conn Hallinan
India & Pakistan: the Unthinkable
Andrew Smolski
Third Coast Pillory: Nativism on the Left – A Realer Smith
Joshua Sperber
Trump in the Age of Identity Politics
Brandy Baker
Jill Stein Sees Russia From Her House
Katheryne Schulz
Report from Santiago de Cuba: Celebrating Fidel’s Rebellious Life
Nelson Valdes
Fidel and the Good People
Norman Solomon
McCarthy’s Smiling Ghost: Democrats Point the Finger at Russia
Renee Parsons
The Snowflake Nation and Trump on Immigration
Margaret Kimberley
Black Fear of Trump
Michael J. Sainato
A Pruitt Running Through It: Trump Kills Nearly Useless EPA With Nomination of Oil Industry Hack
Ron Jacobs
Surviving Hate and Death—The AIDS Crisis in 1980s USA
David Swanson
Virginia’s Constitution Needs Improving
Louis Proyect
Narcos and the Story of Colombia’s Unhappiness
Paul Atwood
War Has Been, is, and Will be the American Way of Life…Unless?
John Wight
Syria and the Bodyguard of Lies
Richard Hardigan
Anti-Semitism Awareness Act: Senate Bill Criminalizes Criticism of Israel
Kathy Kelly
See How We Live
David Macaray
Trump Picks his Secretary of Labor. Ho-Hum.
Howard Lisnoff
Interview with a Political Organizer
Yves Engler
BDS and Anti-Semitism
Adam Parsons
Home Truths About the Climate Emergency
Brian Cloughley
The Decline and Fall of Britain
Eamonn Fingleton
U.S. China Policy: Is Obama Schizoid?
Graham Peebles
Worldwide Air Pollution is Making us Ill
Joseph Natoli
Fake News is Subjective?
Andre Vltchek
Tough-Talking Philippine President Duterte
Binoy Kampmark
Total Surveillance: Snooping in the United Kingdom
Guillermo R. Gil
Vivirse la película: Willful Opposition to the Fiscal Control Board in Puerto Rico
Patrick Bond
South Africa’s Junk Credit Rating was Avoided, But at the Cost of Junk Analysis
Clancy Sigal
Investigate the Protesters! A Trial Balloon Filled With Poison Gas
Pierre Labossiere – Margaret Prescod
Human Rights and Alternative Media Delegation Report on Haiti’s Elections
Charles R. Larson
Review:  Helon Habila’s The Chibok Girls: the Boko Haram Kidnappings and Islamist Militancy in Nigeria
David Yearsley
Brahms and the Tears of Britain’s Oppressed
FacebookTwitterGoogle+RedditEmail